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Ensure due diligence before acquiring a company

| Aug 20, 2020 | Business Formation & Planning |

When looking at purchasing a company, you need to carry out what is known as due diligence to make an accurate assessment of whether you should buy or not. Failing to do so might mean your investment is a waste of money. It is even more important if you are responsible to shareholders.

What should you look for when buying a company?

Here are some of the things to consider in a potential purchase:

  • Why are they selling? Think about what it would take for you to sell your company. If someone offered you more than it was worth, they might tempt you. While you could put it up for sale because you were bored or had health problems, more likely you would sell because the business is having problems. Carry out thorough research to determine the real reason someone is selling.
  • Are they telling the truth? If someone asked you how your company was doing, you would probably put a positive spin on things. Check accounts and tax returns to see if the business you want to buy is doing as well as the current owner says.
  • What do they know that you don’t? Trends change. Laws change. The seller may realize that the best years of the company are behind them. They may know about upcoming changes that will affect the profitability of the company. As an outsider, you may need help to discover what the future holds. Perhaps their primary client is about to go bust. Maybe a new environmental law will affect their ability to produce goods at the same price point.

Before agreeing to acquire a company, seek help to ensure your due diligence covers all bases. When an offer seems too good to be true, it probably is.

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